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“He Who Created the Debt Owes the Debt” – China’s Finance Minister Told Local Governments

China’s local government debts have grown to an alarming high level. Liu Kun, China’s Minister of Finance expressed that local governments are responsible for resolving the issue and the central government will not help. During an interview with the China Central Television (CCTV), Liu said that “(we will) adhere to the principle of no bailout by the central government, and it should be ‘whose child it is who holds (the debt).” (In other words, he who created the debt owes the debt.)

Liu stressed the importance of regulating the local government’s financing platform companies. It has been a common practice for local governments to establish these companies to raise money to finance their spending. These companies usually use land (taken from the government) as collateral to get loans from banks, and later pay back the loans after the local governments sell the land. Now with the collapse of the real estate industry, local governments have a hard time selling land, and thus these companies are unable to pay back the bank loans.

Cheng Xiaonong, a Chinese economist living in the U.S. pointed out that all 31 provinces and municipalities in China had fiscal deficits in 2022. Now the central government is not willing to fill the hole. The result will be that banks will lose the money their customers deposited. In addition local governments must cut spending including salary reductions and layoffs.

According to Bloomberg, in the next five years, nearly 15 trillion yuan (US$2.2 trillion) of China’s local governments’ bonds will mature.

Last December, China’s Ministry of Finance issued 750 billion yuan (US$110 billion) in special national bonds for “economic reform, responding to major emergency events, and other expense items.”

Source: Radio Free Asia, January 9, 2023
https://www.rfa.org/mandarin/yataibaodao/jingmao/hcm1-01092023025727.html

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Economy: How Will China’s Local Governments Manage Their Debts?

The high level of China’s local government debts has grown to a point of being alarming. Liu Kun, China’s Minister of Finance asked local governments to be responsible for their own debts and that the central government will not help, as “whose child do they hold?”

A Taiwanese media Up Media republished an article by Yan Cungou, a former Wen Wei Po editor, commenting on this policy:

Why was Liu Kun so cold-hearted? It is because the central government has depleted its money. It does not have the ability to cover local governments any more. It is just giving a warning up front.

In China, the local governments have accumulated 65 trillion yuan (US$9.6 trillion)in debt. Where can local governments find the money to pay off these debts? One possibility is to exploit private companies. This can result in the massive death of private companies. A second way is to exploit the people. However, people do not have much left after the three years of “zero-COVID” control and over-exploitation can lead to escalated conflicts between people and the authorities. The third option is to cut spending and lay off government staff members. However, the officials might be so hurt that they would stop working hard for the communist regime. In the end, the local government will run out of money and won’t even be able to pay for stability control efforts. Then there would be more social turmoil.

There might be several consequences for the central government’s “not holding local governments’ children.” First is that the central government will lose its authority over the local governments. Second is that local governments will focus on own interests and depart from the central government. Third is that the infighting among local governments (for resources) would intensify. Fourth is that people would protest and add to the pressure on the authorities.

Source: Up Media, January 17, 2023
https://www.upmedia.mg/news_info.php?Type=2&SerialNo=163946

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China’s Housing Prices Have Been Going South for 16 Months

On January 16, China’s National Statistics Bureau released information on the housing prices in 70 major and medium-sized cities during the month of December, 2022. New house sales prices in 55 cities were lower than the previous month, an increase of four more cities from November’s statistics. Existing house sales prices went down in 63 cities, with the addition of one more city from November.

According to the National Statistics Bureau’s data, starting in September 2021, prices of both new house sales and existing house sales in 70 major and medium-sized cities have dropped down and the downward trend has lasted for 16 months, through the present.

Source: China News Agency, January 16, 2023
https://www.cna.com.tw/news/acn/202301160299.aspx

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Pandemic: One Doctor Serves Nine Villages

China Newsweek reported, “A doctor who graduated from a secondary vocational school is responsible for the medical care for nine villages and a total of 1,400 people. When the COVID epidemic wave hit there, he had only a few boxes of fever reduction medicine and 30 antigen test kits.” In the past three years, his villages didn’t treat any patient who had a fever or store any medicine, nor would COVID medicine be shipped there since they were in remote mountains. This doctor spent 3,000 yuan (US$440), of his own money to buy an oxygen machine for his patients.

Normally China’s village hospitals do not have enough medical staff members, medical beds, ventilators, or extra-corporeal life support devices. However, many elderly people in villages do not have regular medical checkups and they often had some different illnesses already before COVID hit. Thus such villages face a much tougher fight against the COVID infection wave.

Even the county level hospitals are short of ventilators: only half of the beds have them.

Source: China News Agency, January 16, 2023
https://www.cna.com.tw/news/acn/202301160242.aspx

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Central Economic Work Conference Stressed Expanding Domestic Demand

China Daily published an article that an author wrote commenting on China’s economic focus for the year 2023. The article said that a Central Economic Work Conference was held on December 15 and 16, 2022. The conference provided a comprehensive plan for China’s economic work in 2023. In the plan, the recovery and expansion of consumer spending has a high priority and thus the expansion of domestic demand is the focal task for China’s economic work.

The article acknowledged that, for the past three years, China’s economy has been impacted negatively by international relations and by COVID. Consumer spending has also gone down significantly. In the first three quarters of 2022, China’s GDP growth rates were 4.8 percent, 0.4 percent, and 3.9 percent, respectively. The growth rate in those three quarters for total retail sales of consumer goods was 3.3 percent, -4.6 percent, and 3.5 percent, respectively. This shows that residents’ consumption dragged down the GDP.

The world economy is very likely to slow down in 2023. Western countries may be trapped in inflation and enter recession. Thus the external demand for China is likely to drop significantly. In fact, this has already happened. The growth rate for China’s exports  in January 2022 was 24.1 percent over the same period a year ago, but only 5.7 percent in September 2022. It could keep sliding in 2023.

Therefore, China’s economic growth will have to rely on domestic consumption.

Source: China Today, January 10, 2023
http://www.chinatoday.com.cn/zw2018/bktg/202301/t20230110_800318097.html

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China’s December Imports/Exports Continued to Decline

Well-known Chinese news site Sina (NASDQ: SINA) recently reported that, according to the data released by the Chinese General Administration of Customs, in U.S. dollar terms, the Chinese exports in December 2022 decreased by 9.9 percent year-over-year, and the imports decreased by 7.5 percent year-over-year. In December, the exports declined for the third consecutive month and the decline has continued to expand. This was mainly due to the increasing pressure of the global economic recession and the slowdown in external demand. December’s exports to the United States fell by 19.5 percent year-over-year. They have continued to be in a state of deep decline and there has been a negative growth for five consecutive months. This has mainly been due to the obvious decline in the demand for Chinese goods in the U.S. domestic market. The Fed’s continuous and substantial interest rate hikes have formed a strong inhibitory effect on the aggregate domestic demand in the United States. In addition, after the pandemic, U.S. domestic consumption has shifted from goods to services. It is very difficult for Chinese exports to the U.S. to turn positive in the short term. In the meantime, China’s exports to the EU fell by 17.5 percent year-over-year. This was a 6.9 percentage points widening loss from the previous month, and a negative growth for four consecutive months. Also, China’s exports to Japan fell by 3.3 percent year-over-year. Overall, China’s exports will slow down sharply in 2023. It is expected that the surplus of the trade in goods  will narrow significantly. In addition, as the outbound travel will gradually resume, the deficit in service trade may expand again.

Source: Sina, January 13, 2023
http://stock.finance.sina.com.cn/stock/go.php/vReport_Show/kind/search/rptid/726955017769/index.phtml

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Mainland Chinese Media: Patients Are Pouring in Like the Tide! Half of the ICU Patients Have Severe Pneumonia

Below are excerpts from a mainland Chinese report on the current situation of covid patients at Minhang Hospital which is affiliated with Fudan University in Shanghai.

“Emergency Department Director Sun Keyu said, ‘We usually have more than 1,000 emergency visits, more than 20 when there are many who stay. The emergency medical department has a maximum of more than 300 people a day. The recent peak of emergency visits reached more than 2,000 people, nearly 1,000 emergency medical visits, and more than 100 stays. Those who stay in the ward come at night, and they will be hospitalized the next day.’”

“Now that the (covid) emergency is peaking, the (covid)-positive medical staff has continued to work including those who have the illness. Those with a high fever may only rest for a day or two, and those with no fever or a low fever have basically persisted.” One day after 9 o’clock in the evening, a nurse found Sun Keyu and burst into tears, ‘I really can’t hold up anymore.’ The pressure was too great; the patients have poured in like the tide. There is no time to do anything; the medical staff members themselves have a fever. I have never encountered such a situation before, .. . ”

“The cell phone of Gao Yuan, director of the critical care medicine department, keeps ringing. In the ICU, patients with severe pneumonia have accounted for half of all patients. Another quarter are patients with underlying diseases that worsened after the infection.”

“‘Things are still at the peak plateau phase and now is the most difficult time. As Director Zhang Wenhong said yesterday, it is expected to last for another two weeks.’ Sun Keyu said that the wards are full now, and only when someone is discharged from the hospital is a bed vacated. The biggest difficulty is that patients need to be hospitalized, but ‘an available bed is hard to find.’ In the future, it is expected that the number of patients coming in by ambulance will decrease, but the patients may be in a more serious condition.”

Sources:                                                                                                                                                                                                                                                Netease, January 5, 2023                                                                                                                                                                                                 https://www.163.com/news/article/HQA9DSOJ00019B3E.html                                                                                                                    https://mp.weixin.qq.com/s/tKQ7nP8oqrnxe00bOr6xsg

Briefings | | |   Economy/Resources Social Stability

2022 China’s Housing Sales Plummeted by 5 Trillion Yuan

According to China Real Estate Information Corporation (CRIC), a Shanghai based real estate consulting firm, the overall sales in China’s housing sector in 2022 is expected to approximate 13.5 trillion yuan (US$ 1.95 trillion), a 5 trillion yuan (US$ 0.72 trillion) or 27 percent decrease from the 18.19 trillion yuan (US$ 2.63 trillion) in 2021. 90 percent of the top 100 real estate developers under-performed last year. The number of developers with sales above 100 billion yuan (US$ 14.5 billion) dropped from 43 during the peak time to only 20 today.

Against this backdrop of diminishing domestic and foreign financing channels, developers are facing huge amounts of outstanding debt. They are also facing other pressures, such as the pressure to deliver properties on-time. Starting in September, a few housing giants slashed their housing prices. A few reductions were as deep as 40 percent. Although the marketing and sales drive continued into the 4th quarter, Chinese home buyers continued to show little enthusiasm.

Source: Central News Agency (Taiwan), January 1, 2023
https://www.cna.com.tw/news/acn/202301010137.aspx percent

Briefings | | |   Economy/Resources